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Thursday, 21 June 2012

Government new mortgage restrictions

AKA we tell you what is good for you, got it?

Today there was an
announcement by the federal government to change the mortgage rules that can
affect you if you are planning on buying and have been holding off. If you
want to know more information on this contact Zoltan at MortgagePRO by email or
phone to get more details on what you must do to get the 30 yr term. OTTAWA — The
federal government is moving once again to tighten mortgage-lending rules amid
lingering concerns about an overheated housing market and household debt
levels.

In a move
called for by some of the big banks, Finance Minister Jim Flaherty announced
Thursday the federal government is reducing the maximum amortization period for
a government-insured mortgage to 25 years from 30 years.

It's the
third time the government has reduced the maximum amortization period in the
last four years, ratcheting it back from 40 years to 35 in 2008, and then
further reduced to 30 years in 2011. Banks will still be allowed to offer
30-year amortization periods on low-ratio mortgages that include a downpayment
of 20 per cent or more.

The changes
will also see the government lower the maximum Canadians can borrow against
their home to 80 per cent of its value, from 85 per cent, in an effort to
encourage them to keep more equity in their homes.

As well,
under the new rules, to qualify for a mortgage loan Canadians can spend a
maximum of 39 per cent of their household income on home expenses such as
mortgage, property taxes and heating.

Flaherty
said Ottawa will limit government-backed insured mortgages to home purchases of
less than $1 million. A downpayment of at least 20 per cent will be required on
mortgage loans for homes priced at or above $1 million.

Reducing the
amortization period will increase monthly payments, but reduce the amount of
total interest paid on a mortgage. Ottawa expects the change from a 30-year to
25-year amortization will, on a $350,000 mortgage loan at four per cent,
increase the monthly payment $177 but reduce total interest costs by nearly
$47,000.

The
government believes less than five per cent of home buyers will be affected by
the clampdown.

The new
rules take effect July 9, 2012.

"We
watch carefully, we monitor the market carefully. I remain concerned about
parts of the Canadian residential real estate market, particularly in Toronto,
but not only in Toronto, so that is why we are intervening once again,"
Flaherty told reporters in Ottawa.

"It's
our job to try to be ahead of things and act in a measured way, listening to
the market. And I have been listening to the market, and quite frankly, I don't
like what I hear, particularly in the condo market."

Flaherty
said the government's moves are part of an effort to "moderate
behaviour" among Canadian homeowners and make them reflect before jumping
into the housing market at the high end.

Canada's
largest city is seeing continuous home building because of persistent demand,
he noted, which is accelerating prices and eroding affordability.

"This
concerns me because it's distorting the market, quite frankly," the
minister added. "My judgment is that we need to calm particularly the
condo market in a few Canadian cities."

Flaherty and
some of the country's leading economists have for months been warning they
remain worried about Canada's housing market and rising household debt.

In March,
prior to delivering the federal budget, Flaherty met with 13 private-sector
economists for his traditional pre-budget consultation to get their assessment
of the Canadian economy.

Some of the
big banks suggested at the time that the federal government consider
implementing "measured actions," such as reducing the maximum
amortization period for government-insured mortgages back to the traditional 25
years.

On Thursday,
the banks largely welcomed the measures.

"Overall
we see (Thursday's) announcement as a much better substitute to interest rate
hikes since the moves are aimed with almost surgical precision at the margins
of the mortgage market," Benjamin Tal with CIBC World Markets said in a
research note.

"The
combined impact of the four changes will not be large enough to derail the
housing market, but are clearly significant enough to soften activity, and at
the margin will act as a negative for house prices —mainly at the mid-range
segment of the market."

Frank
Techar, president of personal and commercial banking at BMO Financial Group,
called the changes "prudent, measured, responsible, timely."

"Minister
Flaherty has tapped the brakes at precisely the right time and his actions
should help ensure Canada's housing market experiences a soft landing,"
Techar said in a statement.

About Me

I am a long term investor in Real Estate and PrivateMortgages for a double digit return. I am also a mortgage Broker at MortgagePRO
Ltd. helping people even with hard to approve files to get the best rate first
and second mortgage custom fitted to their own circumstances. I also offer
investors mortgage investment opportunities for an exceptional return, securing
them monthly income and retire early as these investments are RRSP eligible.
You do not have to be an expert, I will guide you. I also do credit counselling
and debt elimination therapy for people interested to get their financial well
being in order to eliminate stress.